Galaxy Research Manager: USSEC Code of Exclusively Encrypted Assets or Ending Securities Properties Disputes, opening a new path to the United States market

On 22 August, Alex Thorn, Research Manager of Galaxy, stated that the United States Securities and Exchange Commission (SEC) had introduced, on 18 August, the Rules for the Regulation of Encrypted Assets (Regulation Cripto Assets, known as “Reg Cripto”), the first United States set of securities rules specifically designed for the distribution and sale of encrypted assets, rather than simply applying traditional stock regulatory frameworks. Alex Thorn pointed out that the proposal could bring two important changes to the United States encryption industry: first, to allow eligible token projects to be legally distributed to the public (including non-qualified investors); and second, to establish a clear mechanism for the formal termination of investment contracts relating to tokens once the conditions had been met, thereby addressing the long-standing uncertainty of the identity of a large number of historical tokens. According to the proposal, Reg Crypto would apply to encrypted assets “not part of the securities themselves but which had been issued or sold as part of an investment contract”. The framework consists of four main phases: financing, information disclosure, construction, exit. According to Alex Thorn, the significance of Reg Crypto lies in the establishment for the first time of a “currency life-cycle” regulatory framework, whereby a token may constitute an investment contract at an early stage because of the project's construction commitments, but as the project matures, the security attributes can end through a clear process. The SEC expects that approximately 475 issuers may use the safe harbour mechanism for investment contracts each year, while some 130 projects are expected to make real use of the new financing exemption, which means that the short-term impact of the rule may be more evident in addressing the regulatory uncertainty of stock tokens than in promoting an immediate new wave of currency issuance. According to Alex Thorn, this proposal reflects the fact that regulators have begun to recognize the nature of the difference between the issuance of tokens and traditional stock issues, and that the information needs of encrypted asset investors are different, such as the supply of tokens, the power of smart contracts and progress in ecological construction, as opposed to the financial indicators of non-traditional companies. However, he also noted that the rule was still in the process of being proposed and that it was still subject to regulatory changes, challenges for state regulators and legislative implications for Parliament. If finally adopted, Reg Cripto may push the United States to adopt a “legitimate version of ICO 2.0” to create a new regulatory basis for project financing, token circulation and investor protection。